March 24, 2026
Global Equities Take the Lead: A New Shift in Market Performance
For much of the past 15 years, U.S. stocks have performed better relative to international stocks. Recently, though, we've seen a reversal. Developed international markets and emerging markets have outperformed the U.S., both year-to-date in 2026 as well as in 2025.
This video discusses the recent outperformance of international stocks and what is driving this shift, specifically focusing on two potential explanations: valuations and the effects of changes in currency prices.
Valuation Gaps
U.S. stocks entered 2024 at historically high valuations, meaning that investors were paying a historically high price per dollar of earnings, per dollar of dividends, cash flow, and other metrics. U.S. stocks were highly priced, particularly U.S. large-cap growth stocks. International markets, on the other hand, particularly Europe and parts of Asia, were trading at meaningful discounts to the U.S.
The wider the gap in starting valuations, the more everything needs to go right for the higher-priced region. The bar is much higher for the more expensive region, and that explains part of the performance difference that we've seen over the past year or so.
Changes in Currency Values
The second potential explanation could be changes in currency values. A weaker U.S. dollar boosts returns on unhedged international investments.
For U.S.-based investors, currency can meaningfully impact short-term results. However, while currency moves are cyclical and extremely difficult to predict, they can amplify the relative return differences between U.S. and international stocks. A weaker U.S. dollar explains a significant proportion, though not all, of the outperformance of international in 2025.
Lessons for Investors
First, it’s important to remember that diversification matters. It's important to not just own all U.S. stocks; it's important to own a globally diversified portfolio.
The second lesson is that no single region leads forever. We just went through a 15-year stretch where U.S. stocks outperformed international stocks, which came on the heels of about a 10-year stretch where international stocks outperformed. No single region will lead forever.
Third, the goal isn't to chase what's working now, but to build portfolios that can participate in whichever region winds up outperforming in the future.
Finally, international's recent strength isn't a signal to abandon U.S. equities. It's a reminder that diversification works, even if it's been quiet for a while.
If you have questions on anything covered in this video, please don't hesitate to reach out to your advisor.
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